CFIUS: New Act Expands Scope of Review of Foreign Acquisitions in the United States
On August 13, 2018, President Trump signed into law The Foreign Investment Risk Review Modernization Act (the “Act”). The Act significantly defines the scope of what was previously extremely vague—that is, how the U.S. government may review and restrict foreign investment in the U.S. Prior to the Act, the President had virtually unlimited authority to review a foreign company or person’s acquisition of control of U.S. companies through a review by the Committee on Foreign Investment in the United States (CFIUS). Although CFIUS very seldom intervened to prevent foreign acquisitions of U.S. companies, it did so in highly visible and controversial instances. The Act represents Congress’ imprint on this process and both clarifies and expands the types of foreign investment that fall within CFIUS’ jurisdiction. Any international company that considers investing in the U.S. should be aware of the requirements under the Act.
CFIUS, an inter-agency committee, is charged with reviewing foreign investment in the U.S. that may threaten to impair national security. Historically, CFIUS has primarily focused on the acquisition by a foreign person that may result in a foreign person’s obtaining “control” over a U.S. business. The Act authorizes CFIUS to expand its scope of the review to include several other types of transactions, in addition to those traditionally involving a foreign person’s control over a U.S. business:
- “Other investment” involving sensitive personal data, critical infrastructure, or critical technologies. The Act affirms that a foreign investment may trigger CFIUS review even if the foreign person does not “control” the U.S. business (e.g., the foreign person is only a minority owner of the U.S. business), as long as (i) the foreign investment involves sensitive personal data, critical infrastructure, or critical technologies and (ii) the foreign person is not a qualified passive investor. A qualified passive investor may be referred to as a foreign person who (x) does not have access to material non-public technical information of the U.S. business, (y) does not have the right to nominate a member to or observe at the U.S. business’ board of directors, or (z) cannot otherwise be involved in substantive decision-making processes of the U.S. business. The Act clarifies that an investment by a private equity fund may be excluded from CFIUS’ review if the foreign person investing in such fund is a qualified passive investor.
- Certain real estate transactions. Under the Act, CFIUS is authorized to review certain types of real estate transactions in the U.S. that involve real estate in close proximity to a sensitive location (i.e., airports, maritime ports, U.S. military facilities, or U.S. government facilities that are sensitive for reasons related to national security) that could provide the foreign person the ability to collect intelligence or conduct foreign surveillance. Real estate transactions may include the purchase or lease by, or a concession to, a foreign person of real estate.
- Changes in rights. Under the Act, CFIUS may review any change in the rights that a foreign person has with respect to an existing investment in the U.S., provided such change may result in the foreign person’s control of the U.S. business or in making such existing investment qualify as an “other investment” involving sensitive personal data, critical infrastructure, or critical technologies as outlined above.
- The Act also includes a catch-all provision that authorizes CFIUS to review other transactions that are designed or intended to evade or circumvent CFIUS review.
Although the Act authorizes CFIUS to expand its review of foreign investments, the Act specifically permits CFIUS to refine or limit its review authority through regulations to be promulgated. The actual impact of the Act will not be known until CFIUS issues regulations implementing the Act.
International companies that are looking at investment projects in the U.S. should assess as early as possible whether their contemplated projects may fall within CFIUS’ expanded review authority. If so, they need to identify the potential risk factors associated with CFIUS’ review, properly structure the deal to mitigate risk factors, and carefully prepare the declarations (and formal notices, if necessary) that are to be provided to CFIUS for its review, if that is deemed appropriate.